The news and magazine display is immaculate. This morning’s papers from all parts of Europe are beautifully laid out on a long run of the kind of polished tables more often used to display hardback books. Periodicals are full-faced on equally attractive shelving, with good lighting and wide aisles. A coffee bar and comfy sofas encourage customers to linger and to browse…
An old circulation manager’s daydream? No, the main bookshop at Leipzig railway station, on a brief visit to the city a couple of summers back.
Standing in this oasis of calm, once I got past the “wow” factor, two thoughts came to me. Firstly, I understood why publishers on the Continent find our UK retail scene so frustrating. And, secondly, I was forced to the sad conclusion that no retail chain in the UK could possibly afford the luxury of such a space-hungry store layout.
I am no expert on retail rents, but casual observation suggests that profitable operation in a prime UK site demands a much higher turnover per square foot than is implied by the Leipzig model. In my own home town, “ordinary” retailers have been forced out of the high street by a proliferation of coffee shops and chain restaurants, separated mainly by estate agents and opticians. Evidence perhaps of the sectors with high gross margins, or just proof that the British are only really interested in eating and in buying houses (that does not entirely explain the opticians, but perhaps too many muffins can damage your eyesight). Diversity has fallen victim to the need to sweat every square foot of retail space.
Comfy sofas: RIP
If confirmation were needed, the collapse of Borders UK shows what can happen to a retailer which tries to buck that logic. Too much expensive space in prime locations, too many browsers and not enough buyers.
One retailer which certainly knows how to sweat its square footage is WH Smith, now the only “range” retailer for news and mags on many a High Street. In financial terms, its strategy is working, but Smiths’ crowded layouts, proliferation of promo bins and limited range in stationery and books have won it few plaudits. A recent survey by Which? placed Smiths joint bottom for service and quality among 100 retailers. Comments on this report (see http://news.bbc.co.uk/1/hi/magazine/8708145.stm) make interesting reading. As one put it, “I used to buy loads of stuff from WHS - books, music, stationery, magazines, etc… [But] now I buy my music at Amazon, magazines by subscription, quality stationery at John Lewis or Rymans and cheap stationery at Staples.” That sums up the challenge facing one of our key retailers.
In previous articles for InPublishing, I have written about subscriptions and their importance for the FT. Our commitment to subscriptions has sometimes been taken as indicating that we do not care about retail, but nothing could be further from the truth. Retail remains the backbone of newspaper sales in the UK and, even at the FT, we still sell twice as many copies through retail as we do through subs; and half of our subscriptions are in any event fulfilled by retailers. The future of retailing is of vital importance to every publisher of a newspaper or a consumer magazine.
Lessons from the book trade
Having mentioned Borders, it is worth reflecting on bookselling and the near-perfect storm which has engulfed independents in that sector. According to the Booksellers Association, around ten percent of independent bookshops went out of business in 2009, or around three a week (contrast the BA’s membership of less than 1,300 with the NFRN’s 18,000). There are at least three causes: loss of volume to supermarkets which have been heavy discounters of popular titles; losses across the board to Amazon, with its huge range as well as keen prices; and the growing impact of ereaders such as the Kindle and now the iPad. Who’d be a bookseller?
There are parallels and differences in our industry. We may not have an Amazon but we are seeing rapid growth in online subscription selling. Discounting may be less of an issue for us, but that has not stopped supermarkets taking market share from independents through range and availability. And total industry volumes are in decline, eroded at least in part by a shift to the electronic consumption of media.
Doom and gloom? And yet… while the NFRN has for years predicted mass closures among independent newsagents, it has not really happened. The number of news outlets in the UK increased rapidly after the MMC report of 1993, growing from around 48,000 at that time to 54,000 three years later. And there the needle has resolutely stuck. Have some been too ready to cry wolf?
The changing retail mix
Underneath this apparent stability of our retail universe, there has been what the OFT called “a significant and continuing change” in the mix of outlets. The share of newspaper sales taken by multiple retailers reached 43% in 2007, although less than 15% was supermarket groups. Among new entrants to the industry, the OFT found that less than 20% are “specialist” newsagents and roundsmen. And large numbers of what were formerly classified as CTNs have been converted to Convenience formats.
So, what of the future? The safest forecast is usually “more of the same” and, according to the Institute of Grocery Distribution, there will be continuing growth in sales through Convenience Stores. C-stores experienced 6.3% growth in turnover in 2009-10 and account for some 21% of the total UK grocery market. If the IGD is right, sales could grow by another third over as short a timeframe as 3-4 years. That kind of growth is unlikely in the superstore sector, where the scope for adding more stores must now be limited and retailers are having to move into new categories in order to keep expanding. For the C-stores, the IGD cites own-label and food-to-go as major drivers of growth. In both cases, printed media is only a small part of the total mix and not the focus of attention.
The Irish Model
My view is that we are heading towards what I call the Irish model: branded C-stores, many of them of a high standard, but with only a limited commitment to news and magazines – meaning a very limited range of product and little or no promotional space. For newspapers, we will be able to get our titles on the rack, but that’s about all we can expect. For magazines beyond the top few dozen titles, this model is a serious threat as space will not be there for them. For both, major retailers are likely to concentrate on trying to make the category more “efficient” and this could have significant implications for how we trade with them.
Meanwhile, there will be a shakeout among smaller and news-specialist stores. The wolf really is out there and, once economic recovery translates into a new round of rent hikes, I believe we will see more closures. We have relied for too long on the willingness of shop owners and their families to work very long hours for meagre reward, for the sake of having their own business, but not even their dedication can keep every small shop afloat.
Quality niches / locations will still exist and some excellent retailers will be able to operate profitably in them, although costs will be high. WH Smith Travel comes to mind, as does News on the Wharf. But traditional “range retailers” and CTNs, other than in these favoured locations, will really struggle. Their market will continue to be eroded from all sides while costs go up.
On the High Street, WH Smith will defend its position for some time yet as a destination for news and mags but will be under threat in the longer term unless it can improve on those customer satisfaction scores. It would be nice to think that Smiths (like Waterstones in books) will continue to be there to supply the mass market with a wide selection, but it needs to come up with a much more compelling proposition for the consumer.
The home delivery question
So, for those familiar with consultancy-speak: C-stores look like “stars”, small traditional CTNs risk being “dogs” and Smiths is currently perhaps the “cash cow” of this market. The “question mark” category is the broad activity of home (and office) news delivery. This is rightly identified as a differentiator by those who specialise in it. But it remains a cottage industry, with patchy coverage and very uneven service levels, and that in itself creates an opportunity. Among the multiples, Martin McColl has a strategy for building their delivery business and is perhaps the only multi-site retailer with a serious opportunity to create a national delivery system. Among independents, a number have been building up professional delivery operations covering much wider areas than traditionally the case: Pipers News in Sussex, Brightons in Reading and Papers Direct in Glasgow come to mind. For publishers, the opportunity (but also a serious challenge) is to pull these operators together into a comprehensive fulfilment channel: this has been much discussed but is certainly not yet a reality.
Retail will remain important, a shop window for our products and a key source of availability for the casual reader. But publishers cannot rely on retailers to “sell” our products for us. Decent promotional opportunities may be hard to come by even for big titles, with other categories vying for prime positions and promotional space. Meanwhile, smaller publications face a continuing contraction of the outlets on which they can rely. All of which means that publishers have to concentrate on deepening our own direct contacts with readers and potential readers, using our websites and other touch points to attract consumers and then steering them to where they may pick up their copy or have it delivered.
Funnily enough, that’s pretty much what we do with subscriptions as well. Seen this way, retail and subs are two sides of the one coin. News retailing is under many pressures, but it remains fundamental for us. It certainly is not dead yet!
